Business groups: LLC tax repeal ‘is not enough’

Published: May 7, 2010

The head of the Greater Nashua Chamber of Commerce says repealing the controversial tax on limited liability companies is only part of what would restore a business-friendly tax climate in New Hampshire.At a Concord news conference last month, President Chris Williams pressed legislators to permit businesses to shelter more salary income as exempt from state taxes on profits and stock dividends.“Outright repeal of the LLC tax is not enough,” Williams said.The news conference attracted a diverse coalition of business groups, united behind a simple message. Besides the Nashua chamber, they included the Business and Industry Association of New Hampshire, the Auto Dealers of New Hampshire, Retail Merchants of New Hampshire, Independent Insurance Agents of New Hampshire, the Greater Manchester Chamber of Conncerce and the New Hampshire High Technology Council.The LLC tax has appeared on the glide path to repeal since The Telegraph first reported in early March that Gov. John Lynch had changed his mind and would support repeal along with top Democratic leaders in the Legislature.But the business lobby’s campaign to relax what’s regarded as “reasonable compensation” exempt from state business taxes hit a major hurdle last month when state tax officials warned that a Senate-passed bill on the subject (Senate Bill 497) could lead to a $300 million annual raid on the state treasury.“We aren’t sure where that is headed now, and it concerns us,” said Jim Roche, president of the BIA. “That bill may have been derailed irreparably.”
‘We need action now’The House of Representatives has approved a more modest change that would exempt from taxes $50,000 in compensation for all partners in a business. Currently, firms are allowed to legally deduct $6,000 per partner from the tax.Also under the House and Senate bills, federal tax laws regarding compensation would apply to the treatment of New Hampshire tax liability.Business groups contend the question of what income is allowable has led to a soaring increase in the number of state tax audits of firms.Lynch proposed repeal of the LLC tax in his proposals to balance the state’s $216 million budget deficit. The tax adopted in the state budget last June was meant to raise $15 million a year, but Lynch said savvy tax accountants have come up with ways to avoid having to pay it.The LLC repeal also is included in the business tax bill under review by the House Ways and Means Committee.Lynch has not endorsed any proposals to change reasonable compensation, but instead called for the creation of a commission to examine the state’s business tax climate.Williams said that’s a good suggestion for the long term but insufficient this year.“We need action now, this session,” Williams said. “That commission is not going to give us those results we want in the near term.”“The intent here is to keep the heat on,” Roche said. “We aren’t sure where this is headed.” — KEVIN LANDRIGAN/THE TELEGRAPH

This article appears in the May 7 2010 issue of New Hampshire Business Review